Monday, 20 January 2014

TweetI find it hard
to disagree with Ed Miliband’s assertion that banks have become too large and
financial power too concentrated in the hands of a few.That alone is reason enough to want to see
some of them broken up into smaller banks.

I’m far less
convinced about his apparent belief that the additional competition which he
expects to result will bring benefits to businesses, such as more lending.The faith in “competition” as the answer to
just about everything is what gave us the marketization of the health service –
perhaps he isn’t so far away from Thatcher and Blair as he’d like us to
believe.

Certainly,
having more and smaller banks will lead to more competition; it’s the leap
beyond that to the conclusions about who would benefit that I would doubt.Smaller banks are likely to take less risk
rather than more; they’ll be competing for the safest, most profitable,
customers, not the riskiest ones.And if
banks aren’t lending to businesses at the moment, it isn’t because they can’t –
it’s because of their assessment of the likely levels of risk and return.

Paradoxically,
Miliband’s advocacy of breaking up the banks may actually have the opposite
effect of that he claims.Insofar as
breaking up the banks is one of his better ideas, it’s for completely different
reasons than those he gives.